Irish property price inflation still accelerating as demand strengthens


Irish property prices 12.8% higher in September than a year earlier

September marks the sixth month of accelerating residential price inflation

Pick-up in September broadly based but more marked outside the capital

With supply improving modestly, acceleration in property prices reflects buoyant demand

Irish property price inflation continues to accelerate with September recording a year on year increase of 12.8%, up from August’s 11.8% increase. The annual increase in Irish property prices has picked each month since April.

The August increase was revised down marginally from an initial 12.2% reading but such minor revisions mean the broad picture remains one of continuing strong momentum in Irish property prices. Indeed, as the diagram below indicates, the annualised rate of increase in the past three months highlights that prices have been rising at a pace well beyond seasonal norms of late.

The diagram above also suggests the acceleration in property prices in September was particularly notable outside the capital where the annual rate of inflation picked up to 13.2% from 11.7% in August while Dublin property price inflation edged up to 12.2% from 11.9% in August.
Our sense is that strong increases in areas such as Galway city may have contributed to the pick-up in property price inflation outside Dublin in the September data- the CSO highlights a 16.5% annual increase in house prices in the west. Such an outcome would seem to reflect a broadening regional basis of the economic recovery coupled with significant supply shortfalls in specific areas outside the capital.
While inadequate supply remains a key issue, we continue to emphasise the importance of a marked increase in demand as a driver of the recent pick-up in property price inflation. Thus far in 2017, property transactions are some 7.5% higher than a year earlier, implying there has been some improvement in supply.
However, a modest increase in supply seems to be falling far behind the growth in prospective home purchasers as pent-up demand from recent years now seems to be emerging forcefully.  In this context, we would highlight a 17.6% increase in the number of home purchase related mortgage drawdowns in the second quarter of 2017. As the average monetary value of these drawdowns was just 8.1% higher than a year earlier (and consequently falling well short of the increase in average house prices), it appears substantially higher ‘natural’ demand for housing rather than easier credit conditions is a key factor in the recent acceleration in property price inflation.   
While measures announced in Budget 2018 will help boost supply, this is unlikely to be a speedy process. Similarly, the current ‘bulge’ in demand that reflects a catch-up after many years of extremely low levels of property transactions should gradually ease. However, both of these developments are unlikely to occur quickly, implying the transition to a more sustainable pace of Irish property price inflation could take some time.        

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